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Calls for SMSF opt-in requirement to prevent ‘rip offs’

Implementing an automatic rollover system for older SMSF trustees under which they would have to 'opt in' to remain in their SMSF could resolve issues of incapacity and of older trustees becoming “easy prey”, says AllianceBernstein.

AllianceBernstein's head of pension strategies, multi-asset solutions, David Hutchins said at a Sydney event last week that the industry needs to think about what safeguards can be introduced to deal with any risks associated with older trustees managing their super in their 80s.

“Are we seriously thinking that people who sign up at 60 or 65 into some kind of self-managed arrangement are still self-managing when they get into their 80s?” said Mr Hutchins.

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“There is a danger of having older people ripped off either unintentionally or intentionally. There’s a danger that they become easy prey for financial 'conmen' essentially, and we need to think about how we put safeguards in the system.”

Mr Hutchins said one solution might be to adopt a similar system to the auto-roll system in the UK whereby individuals are rolled back into the main pension system every three years but have the option of opting out.

“There should [perhaps] be a requirement with these self-managed arrangements where you must continuously opt in once every three years, so [you would need to] continuously sign up,” he said.

“If you stop doing that, then you get dragged back into the main [superannuation] system.”

This would mean a rollover of the trustees’ superannuation assets to an APRA-regulated super fund, if the trustee didn’t opt in to the SMSF, he explained. Mr Hutchins said this would provide a safeguard to ensure there is ongoing engagement from the SMSF trustee.

“We’ve talked about this with financial products as well, in order to overcome the inertia issue,” he said.

“The view we’ve come to is that unless we’re really wealthy and have people we can trust to look after our money, then we probably ought to be putting our financial affairs in order by our late 70s and having them in a place whereby if you never touched them again it’s all working.”